How Kansas City taxpayers support Google Fiber

Google Fiber isn't exactly a free-market success story.

On Wednesday, Republican FCC commissioner Ajit Pai released a statement praising the Google Fiber project as a model for other metropolitan areas to follow. He argued that it shows that "it is critically important that states and local communities adopt broadband-friendly policies when it comes to rights-of-way management."

Fred Campbell, a former FCC official who now hangs his hat at the Competitive Enterprise Institute, has been singing a similar tune in recent weeks. He portrays the Google Fiber project in Kansas City as a triumph for free markets, once government gets out of the way. "Deregulation promotes private investment," he writes in a recent analysis of the broadband network. He regards the Google project's apparent success as a rebuke to groups like Public Knowledge and Free Press, which advocate a more active government role in developing and regulating broadband networks.

Yet closer examination of the Google Fiber project reveals a more complex story. It's true that the Google Fiber project hasn't developed the way many liberal groups wanted it to. But it's important not to gloss over the fact that Kansas City's support for Google's network went well beyond deregulation to outright corporate welfare. It's hardly an example of the free market in action.

A level playing field?

"When private companies compete on a level playing field, consumers always win," Campbell writes. "When government regulations mandate a particular business model or favor a particular competitor, bureaucracy is the only winner—everyone else loses."

Few would disagree with this in the abstract. But is Google Fiber an example of a level playing field or government favoritism? Campbell seems to believe the former, but his own description of the project suggests the opposite interpretation:

Google received stunning regulatory concessions and incentives from local governments, including free access to virtually everything the city owns or controls: rights of way, central office space, power, interconnections with anchor institutions, marketing and direct mail, and office space for Google employees. City officials also expedited the permitting process and assigned staff specifically to help Google. One county even offered to allow Google to hang its wires on parts of utility poles—for free—that are usually off-limits to communications companies.

Indeed, the agreement between Google and Kansas City, MO, specifies that the city will "make space available to Google in City facilities for the installation of Google’s Central Office equipment and for additional network facilities," will "provide power necessary for Google’s equipment at City locations," and "will not charge Google for such space, power, or related services."

Obviously, offering free (e.g. taxpayer-subsidized) power and rack space goes well beyond "regulatory concessions." Campbell has suggested that these subsidies "weren't as important as the rights of way issues," but much the same point can be made about waiving customary fees for the use of rights of way. Space under a city's streets and along its utility poles is a scarce, taxpayer-owned resource. When a city offers a private company access to those resources for free, it's forgoing an opportunity to raise revenue. The implicit subsidy is even clearer when taxpayers, rather than Google, pay to hire extra city staff to supervise the project.

"There's a reason we have these fees for rights of way," said Mercatus Center scholar Jerry Brito when interviewing Campbell for his podcast. "It's incredibly costly for the community to put up with having the streets torn up every time there's a new entrant." Brito argued that fees were needed to "internalize the costs of what they're imposing on the community" and "to pay for the city to supervise it to make sure that is all done correctly."

Campbell conceded that "you don't want just any company to be able to come in and tear up the streets without some assurance that they'll repair the damage." That's true enough, but the issue goes deeper than that. Even assuming Google leaves the streets exactly as it found them, the company will still be getting free access to valuable taxpayer-owned resources. And it will still impose significant costs—in terms of noise, construction damage, congestion, and so forth—on thousands of Kansas City residents. Waiving fees designed to compensate the community for those costs represents an implicit subsidy to Google.

Telling the truth about subsidies

As depressing as it is to contemplate, we should acknowledge the possibility that it simply doesn't make economic sense for private firms to build new fiber networks without taxpayer subsidies. This is especially likely for new entrants, like Google, who would be building networks from scratch in towns that already have a couple of incumbent players.

If it's true that more robust wired broadband competition won't occur without public support, reasonable people can disagree about the policy implications. Conservatives might argue that we should make do with the limited options we already have, perhaps waiting for advances in wireless technology to provide new alternatives down the road. Liberals might counter that the public benefits of faster broadband networks make them worthy of public subsidies—or they might argue that the government should mandate more open-access rules on existing networks rather than subsidizing new ones.

If a city is going to spend public funds on a new broadband network, it has an obligation to ensure that taxpayers are getting a good deal for their money. That might mean insisting on conditions, such as build-out requirements or open-access rules, that will avoid the need for yet another taxpayer-subsidized network to be constructed in the future. But mis-characterizing a government-supported project as the result of unfettered free markets obscures the true costs of such projects, and makes informed debates over them more difficult.

The argument that the government should do nothing and the free market should do everything is inherently contradictory because the free market exists because of the government. Only when free market fundamentalists get beyond their dogma that government should do nothing can reasonable discussions take place. They also need to get beyond the equally false belief that the other side wants the government to do everything. Unfortunately since they are stuck between a contradiction and a falsehood I don't think it'll ever happen. They are imprisoned in false choices.

The argument that the government should do nothing and the free market should do everything is inherently contradictory because the free market exists because of the government. Only when free market fundamentalists get beyond their dogma that government should do nothing can reasonable discussions take place. They also need to get beyond the equally false belief that the other side wants the government to do everything. Unfortunately since they are stuck between a contradiction and a falsehood I don't think it'll ever happen. They are imprisoned in false choices.

If you've read Steven Levy's "In The Plex" (recommended!!) then you'll know that Google's revitalized quite a few local economies, subsidies notwithstanding. However, that was for data centers, not fiber. My position is that we should let this play out in Kansas City before judging its economic impact!

The first is the anger I feel towards Cox Cable, Verizon, Time Warner and the rest of the "Big Internet" Goon Squad. In recent years instead of slowing growing towards faster and cheaper internet, it seems the inverse is happening and we are starting to pay not only for the service but the bandwidth to access that service because its not offered by the Goon Squad.

I have had the same 250GB limit for nearly 2 and half years. I am using more and more services and my monthly usage is starting to climb toward that limit. I soon will have to decide between the Goon Squad's service or the alternative and in many cases the better service.

The alternative to this very slow market reaction, a market that allowed itself to be placed in this position, is to allow the government to regulate these service providers. This of course means they would determine the access rules, but they also would impose, other restrictions that might make the internet more restrictive and impose on my rights ( privacy, ect ).

It only takes a look at Verizon AT&T cell phone plans to see where "Big Internet' would love to be in. I have no doubt they want to charge me several dollars per GB I go above my current monthly cap. I see no other way but the government to force the industry both wireless internet (3G/4G) and traditional ground broadband internet( fiber, DSL, Cable ) to provide better services.

The alternative to this very slow market reaction, a market that allowed itself to be placed in this position, is to allow the government to regulate these service providers. This of course means they would determine the access rules, but they also would impose, other restrictions that might make the internet more restrictive and impose on my rights ( privacy, ect ).

in a perfect world, internet would be a government-run public utility (i'm one of those chaps that believes internet access should be a fundamental right). however, the world is not perfect, and i don't trust washington to run the internet without making a hash of it. sweethart deals, incompetence, and yes -- violation of privacy etc.

The argument that the government should do nothing and the free market should do everything is inherently contradictory because the free market exists because of the government. Only when free market fundamentalists get beyond their dogma that government should do nothing can reasonable discussions take place. They also need to get beyond the equally false belief that the other side wants the government to do everything. Unfortunately since they are stuck between a contradiction and a falsehood I don't think it'll ever happen. They are imprisoned in false choices.

The same could be said of you, as evident by your statement.

Nice try but if you understood what I wrote then it'd be obvious that's not true. You can't just invert what I said and come to the same conclusion. It's not like my position is the arbitrary result of ideology where you can plug in opposite terms into the variables and get an equivalent expression. Unlike in kindergarten "I know you are but what I am" doesn't work here.

Google is running their fiber into many very poor neighborhoods where it probably has zero chance of ever recovering its investment. There have been a lot of concession on both sides.

And that's great. I don't think anyone is faulting Google for asking for "concessions" because all of that is necessary to get things done. The problem comes in when the free market fundamentalists hold this up as an example of an exclusively free market triumph.

The first is the anger I feel towards Cox Cable, Verizon, Time Warner and the rest of the "Big Internet" Goon Squad. In recent years instead of slowing growing towards faster and cheaper internet, it seems the inverse is happening and we are starting to pay not only for the service but the bandwidth to access that service because its not offered by the Goon Squad.

I have had the same 250GB limit for nearly 2 and half years. I am using more and more services and my monthly usage is starting to climb toward that limit. I soon will have to decide between the Goon Squad's service or the alternative and in many cases the better service.

The alternative to this very slow market reaction, a market that allowed itself to be placed in this position, is to allow the government to regulate these service providers. This of course means they would determine the access rules, but they also would impose, other restrictions that might make the internet more restrictive and impose on my rights ( privacy, ect ).

It only takes a look at Verizon AT&T cell phone plans to see where "Big Internet' would love to be in. I have no doubt they want to charge me several dollars per GB I go above my current monthly cap. I see no other way but the government to force the industry both wireless internet (3G/4G) and traditional ground broadband internet( fiber, DSL, Cable ) to provide better services.

You are by no means the only one with this quandry. I'd be more than happy to have the government re-regulate the telcos and cablecos, but then I'd have to live with the resulting restrictions, some of which make me queasy. The fact is, Google and other likeminded projects (corporate or civic) are our best shot at showing Big Internet how it's done. My fear is that Google spins off GFiber into its own company...and the telcos start hunting it five seconds later.

I don't think Campbell's emphasising the "level playing field" argument, since, as you point out, the field isn't level. He's emphasising "start by waiving regulations, fees, and bureaucracy." When it comes time to level the field, give all companies the sort of corporate welfare Google got. (Or at least all "good" companies, since you can't have just anyone tearing up the roads....)

This overlooks the resulting disaster, in real financial terms and in externalities, that you pointed out.

Whether it's government developed or not, one thing is clear: Google needs to expand this to more cities- starting with mine.

I sure hope you wrote this on you way to local town hall in order to talk to your major who this can happen in your town? Or even better how your town can use its resources to have a company build a city wide fiber network and offer equal access to all competitors for providing service on it.

Or are you on your way to your state congress man to tell him that he gets your vote when he repeals those laws that forbid citizens and cities in the state to build their own telecommunication networks.

Thanks for the good read. Definitely Google would not offer free Internet connections if it were not for profitability. That said, the current lack of choices (monoply) in my city could use another new ISP to rebalance the competition.

As far as city resources go, I would say let them have it. Unused resources are, well, unused and wasted. However, a better approach is for the city (and its residents) to share the profits for providing the infrastructure to Google, instead of giving it away. Then we would have a "freer" market where the residents are stakeholders in this whole deal.

The way I read the story is that the city and county gave up long-term revenue (and incurred expenses) from certain sources with the potential possibility that it all (and then some) be made up from network effects from having a high-speed broadband network. e.g. more high-tech industry comes in. It's a gamble, and a big one for everyone.

Whether it's government developed or not, one thing is clear: Google needs to expand this to more cities- starting with mine.

I sure hope you wrote this on you way to local town hall in order to talk to your major who this can happen in your town? Or even better how your town can use its resources to have a company build a city wide fiber network and offer equal access to all competitors for providing service on it.

Or are you on your way to your state congress man to tell him that he gets your vote when he repeals those laws that forbid citizens and cities in the state to build their own telecommunication networks.

I've tried both and got nowhere mostly because the incumbent cableco throws bones to the city council and state by providing low-cost internet access to the poor and provides funding for local television programming. It's the old Quantity (i.e. Access) vs. Quality (i.e. Efficiency) trade-off and in my heavily Democratic area Access always wins.

Google is running their fiber into many very poor neighborhoods where it probably has zero chance of ever recovering its investment. There have been a lot of concession on both sides.

And that's great. I don't think anyone is faulting Google for asking for "concessions" because all of that is necessary to get things done. The problem comes in when the free market fundamentalists hold this up as an example of an exclusively free market triumph.

Exclusively free market? No. But you cant deny that this is a free market triumph, or at least a free market success story.

Its hard to argue that Google isnt getting an implicit subsidy (although i think the author greatly exaggerates how big a subsidy) thats kind of inevitable seeing as Kansas owns a controls the right of way in question.

Call me idealistic or naive, but I'm just more excited about the technology than anything else.

Correct me if I'm wrong, but wouldn't doesn't the fact that Google offers the option of 'Free Internet' to city residents (to some extent) balance out the fact that they received so many free services from the city? Again, someone who knows more about the monetary value of the free services Google received versus the benefit of Google offering free internet please feel free to correct me, but I sort of understand where the counties are coming from when they offer Google so much free stuff - they see a benefit to their residents.

The argument that the government should do nothing and the free market should do everything is inherently contradictory because the free market exists because of the government.

Not sure if i should feed you but what the heck. You do realize that the world exited before the 20th century, right? That there was a time when people by in large traded freely and governments largely lacked the power or desire to interfere?

The argument that the government should do nothing and the free market should do everything is inherently contradictory because the free market exists because of the government.

Not sure if i should feed you but what the heck. You do realize that the world exited before the 20th century, right? That there was a time when people by in large traded freely and governments largely lacked the power or desire to interfere?

This is often described as 'most of human history'.

The expression about the certainty of death and taxes comes to mind. Not all influences is of the, "don't do that variety".

Whether it's government developed or not, one thing is clear: Google needs to expand this to more cities- starting with mine.

I sure hope you wrote this on you way to local town hall in order to talk to your major who this can happen in your town? Or even better how your town can use its resources to have a company build a city wide fiber network and offer equal access to all competitors for providing service on it.

Or are you on your way to your state congress man to tell him that he gets your vote when he repeals those laws that forbid citizens and cities in the state to build their own telecommunication networks.

Actually, you're off by a bit - I spoke to my local representatives a week ago about trying to working to bring better resources into the town because Verizon and Comcast aren't cutting it (and "broadcast internet" is no better of a solution.)

Meanwhile, across the street, I then dropped off a note with my local state and federal reps to let them know that yes, the laws need to be repealed so someone like my local power coop can get into the internet game.

Next question? Or did you just assume I'm like the average person who says something but doesn't back up his words?

The argument that the government should do nothing and the free market should do everything is inherently contradictory because the free market exists because of the government. Only when free market fundamentalists get beyond their dogma that government should do nothing can reasonable discussions take place. They also need to get beyond the equally false belief that the other side wants the government to do everything. Unfortunately since they are stuck between a contradiction and a falsehood I don't think it'll ever happen. They are imprisoned in false choices.

The same could be said of you, as evident by your statement.

Nice try but if you understood what I wrote then it'd be obvious that's not true. You can't just invert what I said and come to the same conclusion. It's not like my position is the arbitrary result of ideology where you can plug in opposite terms into the variables and get an equivalent expression. Unlike in kindergarten "I know you are but what I am" doesn't work here.

Perhaps my intent wasn't clear. My point was supposed to be that you claim free market fundamentalists think that the "other side" wants the government to do everything, which isn't necessarily true as you correctly pointed out. I'm saying that you are wrong in saying that free market fundamentalists think the government should do nothing. No government = anarchy != free market. Free markets require a government to, among other things, protect the right to private property and stop monopolistic behavior. I'm thinking you might not know all that much about what free markets are, or you talked to someone who said they want free markets but really they wanted anarchy so that confused you.

1. How much did this project actually cost the citizens? Do you have a dollar amount? Per Citizen? Will each citizen have to pay more?2. Expedited permitting process? That's funny - did the paperwork only gather dust in some bureaucrat's inbox for 2 weeks instead of the normal 9 months?2. And, why does the municipality have extra office space to "give" away? Did they just buy the office space or have the taxpayers been paying for empty office space for the past 100 years?3. Will Google actually be getting free "Power" from the city for the length of this experiment? That's hard to believe.4. Marketing & Direct Mail? The municipality is helping Google with Marketing?!?!? You've gotta be kidding! What, did the city insert a blurb into a monthly newsletter that they'd normally send out anyway?

I suspect that the true marginal cost to each taxpaying citizen is very, very, very low and widely differs from an arbitrary crazy value that a government economist may assign to it. I suspect that Google is utilizing free and heretofore wasted excess capacity in the local governments, such as, bureaucrats that should be able to process permits faster than they're accustomed to. Secondly, if the government were attempting to exactly replicate what Google is doing, the cost would be astronomical -- it would never be done.

The typical Republican argument drives me crazy - makes my blood boil. The local government's role is "valuable" and necessary in this case, but I don't think that the taxpayer will pay 1 penny more for Google's improvements to the community.

The argument that the government should do nothing and the free market should do everything is inherently contradictory because the free market exists because of the government.

Not sure if i should feed you but what the heck. You do realize that the world exited before the 20th century, right? That there was a time when people by in large traded freely and governments largely lacked the power or desire to interfere?

This is often described as 'most of human history'.

But back then, if someone sold you a bad product in the market, you could just have them killed.

Sell me a bad horse? I'd better get a refund AND a good horse.

Back then, the only people who could afford anything in the market were rich and very powerful. Merchants were actually careful. But now the rich and powerful are the merchants, with nothing to keep them in check except the government.

Rose colored glasses. Gotta love them

Next you'll start talking about how great it was to live "back in the days". No one needed vaccinations and no pollution, all organic food, 2-3 hour work days. It was a paradise back then!

As depressing as it is to contemplate, we should acknowledge the possibility that it simply doesn't make economic sense for private firms to build new fiber networks without taxpayer subsidies.

So why is that? Companies built networks before the Internet and somehow made money. Look at cable TV: in the early days it was only marginally better (at least in terms of channels offered) than putting up an antenna. In most areas, really not worth the effort to install a fidgety coaxial cable network. During the building boom years we (I work for a cable company) had large scale projects that will take decades to pay off, but they were built out because we basically wanted the business. Same thing with the telco.

There's really no reason a 3rd player can't come into a market and compete, except that it's hard to get people to switch once they're used to paying one provider. Investors know this and won't back anyone with a new idea. There are exceptions, I used to work in a city that had 2 cable companies, but that was only because the "other" cable company had exclusive contracts with apartment buildings to prop up the base investment.

One final thought: so does this mean that the incumbents are now collecting revenue for the new players? After all, the cable company collects a "franchise fee," a tax for doing business in a town, from every subscriber. If Google is getting preferential access to buildings and free electricity, that cost has to come from somewhere. If enough people move over to Google, will the deal change, or will Kansas City just watch that revenue go away?

you cant deny that this is a free market triumph, or at least a free market success story.

It's a subsidized free market success story (assuming of course it's successful in the long term). To praise it as the result of the government getting out of the way is an insult to the free market.

Quote:

Its hard to argue that Google isnt getting an implicit subsidy (although i think the author greatly exaggerates how big a subsidy) thats kind of inevitable seeing as Kansas owns a controls the right of way in question.

It's hardly inevitable. In a pure free market solution the right of way and other benefits would simply be paid for, not granted.

"As depressing as it is to contemplate, we should acknowledge the possibility that it simply doesn't make economic sense for private firms to build new fiber networks without taxpayer subsidies."

If you define subsidy as not having to jump through a million bureaucratic hoops and pay through the nose to use a right of way, then yea it probably doesnt make economic sense for private firms to build fiber networks without a 'subsidy'.

But the same could be said about any kind of business. If a government required that you fill out a stack of forms that is 20 feet tall and pay millions in fees to open a car dealership, then you could then reasonably say that it simply doesnt make economic sense for a private firm to open a new car dealership without taxpayer subsidies.

The real question here should be, what is the real, actual cost to the taxpayer when Google, or any other private firm wants to use the public right of way? What is the minimum regulation necessary to protect the public's interest in the right of way? Establish those two things and then we can talk about whether it makes economic sense to for private firms to lay fiber.

Google Fiber or any other project for that matter shouldn't be developed the way liberal or conservative groups want it to. They should be developed in a rational and balanced manner without regard to hyper-partisan ideology.

Much of the phone infrastructure was built with government funds directly, or through really really low interest loans. Sure that copper isn't used much and the government was less involved in the telco fiber role outs, but with out the copper in place, those telco fiber role outs would be impossible.

Cable on the other hand, in the past, has had way less government subsidies. Their plant was mostly built out of pocket. That is changing though. Lots of stimulus money went out to cable companies. I know, I was an application technical evaluator. Even so, the government manages the relationships between utilities that allow cable to use power companies' infrastructure.

The FCC is also in the transition to help rural broadband by moving money from rural telco.

Big infrastructure programs need government interactions and government support. Just getting something attached to a telephone pole (that the power company owns) would be impossible with out government support.

The government ultimately is the referee of the free market. It sets up the rules and the infrastructure for the markets to exist. With out rules and regulations markets will tend to develop monopolies or oligarchies, and cease to be a free market, and barriers to entry will be created by those monopolies or oligarchies. This is not to say that bad regulation can cause that too, but i'm talking in the abstract.

Also there are places were the market fails. Where there are naturally occurring barriers to entry.

Broadband is one of those markets that have both issues. I could probably write a book on why. There are barriers to entry due to monopolies and natural barriers. Thus it is not a real free market. Government intervention if required to help the market move towards more freedom.

"As depressing as it is to contemplate, we should acknowledge the possibility that it simply doesn't make economic sense for private firms to build new fiber networks without taxpayer subsidies."

Money is not the issue, it's the legal red tape. The only companies that get right-away by default as Cable, Telephone, Gas, Water, Electric, Sewage, possibly a few others. ISPs do not fall in this category. A cable company or telephone company may also be an ISP, but that's not what they're categorized as.

If you wanted to be an ISP only and lay fiber, you would need to get permission from everyone's to get access to their property. Good luck with that.

There are been several case studies in rural areas in the USA with sub 2 house-holds/sq/mi, and fiber roll out by a private company made profitable in under 5 years.

As it currently stands, "completely" Free Markets do not exist, at least not in the form that Conservatives lobby for. I love the Conservative argument against Public Welfare, but their love for Corporate Welfare (ie subsidies); you can't have both Corporate Welfare and quote/unquote "Free Markets". I, for one, would love to get rid of taxpayer subsidies for industries that no longer require it; but if they're going to continue to ask for and take taxpayer money, then they need to deal with the "Regulations" associated with it, just like the Regulations (rules) enforced for Public Welfare recipients. In any case, when it comes to "public" safety, the Government has a role to ensure that our food, air, and water are safe.

The argument that the government should do nothing and the free market should do everything is inherently contradictory because the free market exists because of the government.

Not sure if i should feed you but what the heck. You do realize that the world exited before the 20th century, right? That there was a time when people by in large traded freely and governments largely lacked the power or desire to interfere?

This is often described as 'most of human history'.

But back then, if someone sold you a bad product in the market, you could just have them killed.

Sell me a bad horse? I'd better get a refund AND a good horse.

Back then, the only people who could afford anything in the market were rich and very powerful. Merchants were actually careful. But now the rich and powerful are the merchants, with nothing to keep them in check except the government.

Rose colored glasses. Gotta love them

Next you'll start talking about how great it was to live "back in the days". No one needed vaccinations and no pollution, all organic food, 2-3 hour work days. It was a paradise back then!

Ahh yes, couldnt see this one coming. Even setting aside your tortured understanding of history, i was only responding to the claim that "the free market exists because of the government", i was not commenting on if things were better or not. Strawman dismissed.

The newsradio program "Marketplace" recently had a story about Google Fiber as well. There was more info on how Google Fiber works:

Quote:

Google will only bring its fiber service to neighborhoods where enough people pay the $10 registration fee....And what they're doing is offering something they call free Internet. It's not super fast, and it's not exactly free. Customers are expected to pay the $300 installation fee, then they get normal broadband speeds for seven years.

It's not a bad deal by any means, but it doesn't appear to be a full, citywide rollout of broadband fiber.

Google is running their fiber into many very poor neighborhoods where it probably has zero chance of ever recovering its investment. There have been a lot of concession on both sides.

No they're not. If a poor neighborhood doesn't meet the minimum "Fiberhood" goal, it gets skipped in the build out. https://fiber.google.com/how/

The same is true for the rich neighborhoods. And they've lowered the minimum preregistration level to 10% in the poorest areas. That's 10% of the population who either needs to sign up for the free internet (with a $300 install) fee or any of the other options.

Timothy B. Lee / Timothy covers tech policy for Ars, with a particular focus on patent and copyright law, privacy, free speech, and open government. His writing has appeared in Slate, Reason, Wired, and the New York Times.